How To Give Your Finances A Makeover For The New Year

Did your finances get off track this year? Many millennials will answer yes to this question. Life becomes hectic at times and we focus so much on having fun that we forget to budget. We also tend to live in the moment and worry about savings and investments later. Now, however, is the perfect time to take control and turn your finances around. It is not going to be an easy process, but it will be worth it. The following steps will help you plan and execute your financial makeover.

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1. Set Financial Goals

The first step of your financial makeover should be setting financial goals. This is the most important step because your goals will determine how you plan to save and spend your money. Financial goals can include things like saving $500 for an upcoming trip or an increase in income this year. Start by listing everything that you would like to do with your money this year. It is easy to do this in the same way that you would write out a brain dump. If you are not sure where to start, check out Credit Sesame to get your credit score for free. When the list is complete, group savings and spending goals together. From there, choose the top five or six things that you would like to do with your money. These will be your financial goals for the year. Keep these goals in a place that you will easily see and measure your progress throughout the year.

2. Organize Your Bills

Step two of your financial makeover is organizing the bills. Knowing when bills are due plays a critical part in staying on top of your finances. Gather all your bills (including the dreaded student loans if you have them) and organize them in a way that makes sense to you. You want to be able to clearly see when each bill is due and the amount that you will need to pay. Bills like the electricity or water bill will be different each month, so you will need to pay closer attention to them each month. The best way that I have found to organize bills is to record bill due dates and amounts in either a monthly planner or an app. The choice is up to you, but make sure that you choose something that you will use throughout the year. Otherwise, the purpose is defeated.

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3. Create a Budget

The budget is like the meat and potatoes of a financial makeover. This will be your plan to reach your goals. It’s easy to start your budget at the beginning of the month or year. Basically, you take your financial goals and organized bills and put them in one place. The best day to budget is payday. It ensures that you have given all your money a job.

Think about the things that need to be taken care of before your next payday and list your paycheck amount. Organizing bills in the previous step should make this part very easy. Distribute your paycheck to bills first, then work on funding your financial goals. The budget is complete when every dollar from your check has a job to do. Now, just spend the money based on your budget. Phone and web apps help simplify this process. They will give you the bonus of tracking your spending automatically.

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4. Sinking Funds

Some of us may have a few expenses that only come up quarterly or once per year. Preparation is the key to having enough money to cover these expenses when the time comes. The best way to prepare for these sporadic expenses is to use sinking funds. Sinking funds include money set aside for expenses that you know will come up in the future. Let’s take oil changes for your car as an example. Eventually, the oil in your car will need to be changed, but it’s not something that is budgeted for regularly.

If you have a sinking fund for car maintenance, the money will be available for your next oil change. After the oil change, replace the money in your sinking fund before the next oil change is scheduled. Sinking funds can be approached a few different ways. Set money aside weekly, monthly, or all at once for sinking funds. The choice is yours, just be sure not to dip into sinking funds for other things.

5. Savings

Your savings account should be separate from your checking account. These accounts earn interest based on the amount of money kept in the account. Put any extra money that is found in your budget into a savings account to build your savings to a comfortable amount. The goal is to save enough money in a savings account to cover an unexpected expense of $500-$1,000. Use these funds in the event of a true emergency. Cover unexpected expenses and emergencies stress free with your savings account.

I read an article that stated that only 37% of millennials would be able to cover an unexpected expense with savings. The other 63% would have to reduce spending, use a credit card, or borrow from family or friends to cover the expense. Savings play an important part in the financial makeover. An unexpected expense is not something that you know will come up eventually, like an oil change. You would not use money from sinking funds to pay for an unexpected expense.

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Keeping Your Financial Makeover On Track

The hardest thing about a financial makeover is staying on track. It seems like most people start off with great momentum and then fall off as life gets busy. I encourage you not to be that person. Follow these steps in a way that makes sense and keeps you on track. If you need to use a traditional notebook with pen and paper to stay on track, consider using a budget notebook. If apps are your thing, then be sure to try Mint. Choose a method that makes the most sense to you. This year, make a vow to yourself to keep up with your finances. Find an accountability partner if you need one. If you miss the first of the year, start anyway. Do not shoot for perfection in the beginning, just don’t be afraid to get started.

***This article contains affiliate links, and we will be compensated for any purchase made by clicking on them. Thank you for supporting Miss Millennia Magazine!***